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Semiannual Report to Congress

April 1-September 30, 1995

Executive Summary

** This document is an electronic version of the printed report summary. The printed version may contain charts which are not reproduced in this electronic version. To obtain a printed copy of the report, contact Stephanie Keys at 202-260-4912**

Foreword

During this semiannual reporting period, the Office of Inspector General has been involved in change, both in Agency operations and in our own. We have continued helping the Agency make strategic planning and streamlining decisions and have continued identifying cost saving opportunities through our report recommendations and direct consultations. We have expanded our performance and management audits into new program areas to help the Agency deliver its environmental mission. We have also continued monitoring Agency progress in correcting some of its longstanding problems. The OIG itself has performed a rigorous self examination to further improve our own economy, efficiency and effectiveness by reducing our investment in administrative functions while maximizing our application of resources to the Agency's greatest needs.

This report highlights some our most significant audits, investigations and concerns, along with Agency actions to implement our recommendations. Among the subjects discussed in this report is the threat of contamination to the nation's drinking water, inappropriate use of cooperative agreements, problems in monitoring the transportation of hazardous waste, faulty air quality reporting, and Agency, contractor and grantee accounting problems. We have also recognized significant achievement and innovative approaches by the Agency resulting in operational improvement and cost savings.

We will continue to encourage the successful cooperative efforts between the OIG and Agency management to help bring about meaningful change and make difficult resource decisions. Through this shared commitment of pursuing economy, efficiency and effectiveness, we look forward to working with EPA management to meet its current and future challenges.

John C. Martin
Inspector General

EPA's Progress in Improving Areas of Significant OIG Concern

This section of our report presents the Office of Inspector General's (OIG) perspective on significant problems which the Agency must continue to address to ensure its programs are conducted in an effective, efficient, and economical manner. OIG and EPA personnel have cooperated extensively to address these problems. The Agency has also taken a number of actions either independently or in prompt response to our reports to improve its operations. However, EPA's most significant problems were created over a long period of time, and resolution will require long term commitments and constant attention throughout the Agency. Therefore, it is too soon to determine whether EPA management's corrective actions will fully solve these problems.

The following presents the areas of significant current concern to the OIG, and some of EPA's actions taken during the last year to address them.

Drinking Water Data Integrity

OIG Concerns

The Centers for Disease Control and Prevention estimate that over 940,000 people become ill every year from drinking contaminated water, 900 of whom die. EPA and the states are responsible for ensuring that drinking water is safe. However, we found weaknesses in the way that EPA and the states conduct the data management process for monitoring the nation's drinking water data, especially for small and very small suppliers. Only 4 states out of the 44 reviewed had formal documented procedures for reviewing reported test data. We projected nationwide that 11.6 percent of operators at community, surface public water systems reported erroneous data one or more times from 1991 through 1994, including 20 public water systems which might have deliberately falsified data. If water system operators report invalid or falsified test data, serious health risks could go undetected and negate EPA's and the states' ability to take proactive measures to prevent water supply contamination. In addition, many states required water system operators to report more test data than EPA required, but the states usually did not review the data. Therefore, EPA should work with the states to determine the necessary level of reporting requirements to ensure water quality, given the severe resource constraints at all levels of government.

We also found that states in Region 7 needed automated data management systems for more consistent and efficient data management. EPA relied upon disjointed and manual or partially automated state systems to update its primary water management automated data base, the Federal Reporting Data System. This condition could be representative of states in other regions.

Agency Actions

Agency officials generally agreed with our concerns on drinking water data integrity, but stated that budget constraints may prevent them from taking any actions. At the time of the Region 7 audit, two states were committed to adopting EPA's new automated data management system and a third was seriously considering it; Region 7 was working with the fourth state to encourage it to use the system.

Environmental, Safety and Health Program At EPA Labs

OIG Concerns

In July 1993, an EPA laboratory paid a $2,500 fine to a state as a penalty for Resource Conservation and Recovery Act (RCRA) violations. Since 1991, at least one other EPA laboratory has received Notices of Violation of RCRA regulations, but corrective actions were taken and no sanctions applied. Not adhering to its own environmental regulations could be costly to EPA both financially and, more importantly, in the way the Agency is perceived by the community which it regulates. A recent audit found serious problems in the environmental, safety and health (ESH) program at Agency laboratories and facilities. Problems were found in meeting RCRA, safety and health regulations in every location visited, placing the health and safety of EPA employees and their surrounding environment at risk.

Agency Actions

The Agency is taking a number of actions including establishing a team to assist program managers in correcting ESH problems at their facilities, updating senior managers on the status of corrective actions, and evaluating alternatives for communicating the most significant problems to top EPA management for resolution.

Hazardous Waste

OIG Concerns

RCRA establishes a framework for managing hazardous waste from "cradle to grave," that is, from generation to disposal. EPA developed a manifest system to assure hazardous waste shipped off site by generators arrives at proper destinations. However, a recent audit of these manifesting requirements found that EPA does not know the level of generator compliance with the system. Because of the high cost of proper hazardous waste management, companies have deliberately bypassed manifesting requirements, posing significant threats to human health and the environment. The manifest system does not always provide generators, EPA, or the states with the means to track hazardous waste to its final destination. Also, EPA's inspections of generators were not always targeted to ensure the most effective use of resources.

Agency Actions

EPA has begun working with the Department of Transportation and the states to better coordinate the regulation of shipments of hazardous waste, and has initiated pilot projects to introduce electronic reporting of compliance data for hazardous waste management programs.

Financial Management

OIG Concerns

The Agency team that conducted a National Performance Review of EPA's financial management reported three weaknesses: insufficient time and funds; the complex financial management systems and processes; and a wide disparity in expertise and attention paid to financial management among EPA managers. In addition, the OIG has repeatedly reported that EPA's accounting systems do not provide complete, consistent, reliable and timely data. Although the Agency has made a number of significant improvements in financial management, additional actions are needed to ensure that EPA has trained staff, policies, procedures and systems to carry out these responsibilities effectively. For example, during fiscal 1995, the OIG found the following problems.

An audit showed that EPA has not aggressively pursued collecting user fees; through fiscal 1994 EPA had collected only $22 million of the congressionally directed $148 million in new user fees.

Another audit identified that EPA was not charging for its indirect costs incurred in performing the work on 178 active interagency agreements (IAGs), a loss to the Agency of an estimated $5 million to $23 million.

An audit of EPA's fiscal 1994 financial statements identified accounts receivable problems at three of the four regional offices audited, including two receivables valued at $4.7 million which were not recorded timely; the allowance for doubtful accounts was understated by $346,701; and $4.7 million in marketable securities accepted in settlement of accounts receivable were not recorded.

An audit of one region's budget execution practices showed that it had funded management and support activities with resources meant to operate environmental programs, disregarded reprogramming rules, routinely overobligated program elements, and not provided program managers with sufficient budget and financial information.

Two separate audits identified continuing problems with some Agency officials not aggressively identifying and deobligating unliquidated obligations that are no longer needed; the audits estimated that $38 million of unused funds may have been utilized to pay for other government programs or EPA initiatives.

Finally, an audit found that EPA offices were not using the government bankcard when allowable, costing the Agency hundreds of thousands of dollars (as much as $700,000 in fiscal 1994 alone) and significant inefficiencies.

Agency Actions

The Agency recently took action to streamline the processing of grantees' financial status reports in order to deobligate unused funds more timely. The new process will help alleviate any additional growth in the backlog; however action is still required to reduce the existing backlog. In addition, EPA has agreed to take greater advantage of the savings offered by the bankcard program. The Agency, for various reasons such as staffing and budget constraints, has not taken action on all of our concerns and much more work is necessary to address the problem areas we have identified.

Information Resources Management (IRM)

OIG Concerns

IRM is critical to the success of all program activities. For a number of years, EPA's IRM program has been hampered by serious problems such as data quality deficiencies, significant cost overruns and delays in developing information systems, development of duplicate information systems, and difficulties in addressing cross-media pollution problems. While EPA has been taking actions to improve its IRM program, we still have concerns about EPA's ability and commitment to address its long-standing IRM problems. For example, a proposed reorganization for the Office of Information Resources Management (OIRM) was initiated which, among other changes, provides for appointment of a Chief Information Officer (CIO). Although this action is a step in the right direction, the proposal does not invest the CIO with full-time responsibility for both internal and external IRM issues. Therefore, formal lines of authority for IRM matters will remain fragmented between two Assistant Administrators. In addition, this year an OIG audit found that application software maintenance is still not adequately managed in areas such as recording and analyzing system failures, tracking changes dictated by new legislation or evolving user needs, or monitoring resource utilization.

Agency Actions

EPA continues to take a number of far-reaching actions in response to a series of reports on the IRM program. For example, the top level Executive Steering Committee for IRM held meetings during 1995, and issued the IRM Strategic Plan. In response to the report on software maintenance, EPA has begun developing performance indicators for application software, and is taking steps to distinguish system-level operations costs from maintenance costs. The Agency is continuing to implement the recommendations from our September 28, 1994, report on the Integrated Financial Management System, but some problems still warrant high-level attention, such as accounting for Agency property.

Management of Extramural Resources

OIG Concerns

EPA relies extensively on contractors and other outside entities to assist in: cleaning up pollution; developing national policy; setting the environmental agenda for the future; and providing goods and services. EPA funds public organizations, such as universities or state and local organizations, and other Federal agencies, to pursue areas of mutual environmental concern through cooperative agreements and interagency agreements. EPA needs to continue improving its extramural resources management and to emphasize that Agency officials are accountable for their actions. While we commend and support the Agency's initiatives, EPA's resource management problems continue to be identified by our recent work.

Grants and Cooperative Agreements (CAs)

Grant and cooperative agreement audits at four university research centers funded through Congressional earmarks showed instances of mischarging costs, not delivering products, and working outside the scope of the agreement. On one project, neither the project officer nor the grants specialist reviewed or approved training manuals that cost EPA an estimated $90,000. In another instance, four years after EPA awarded an agreement to a university, the research center proposed in the agreement was not properly established.

An audit of Economy Act agreements showed that EPA did not adequately consider cost in determining to use IAGs rather than its own procurement process when purchasing goods and services. Independent Government Cost Estimates, cost comparisons, and
better justification in the Decision Memorandum would ensure that the program offices focus on cost reasonableness, not just convenience. Also, project officers were generally not obtaining and reviewing cost information before approving invoices for payment.

Another audit identified that Grants Administration Division (GAD) personnel did not comply with EPA policies and procedures when administering assistance agreements. Most project officers did not visit or correspond with recipients, review financial matters and audit reports, or notify GAD that projects were completed, and some project officers destroyed or lost the Agency's records. While GAD and Region 3 administered the same types of agreements, GAD did not manage as well as Region 3.

Subcontracting

During fiscal 1995, an audit showed that EPA managers interfered with prime contractors' responsibilities to manage and competitively award subcontracts by directing prime contractors to use specific subcontractors or to subcontract specific tasks. EPA program managers used prime contractors as subcontract brokers, avoided competition requirements for direct Federal procurement, and noncompetitively obtained the services of desired contractors through directed subcontract awards.

Superfund Contracting

A recent audit found that the contractor at EPA's Edison, New Jersey laboratory did not adequately control government furnished property. The contractor did not routinely perform annual inventories at the laboratory; an unannounced OIG inventory revealed missing items; automobiles were prematurely auctioned without the Regional Project Officer or Contracting Officer's knowledge; and general purpose equipment was routinely provided to contractors at the Edison and Lexington labs without meeting Federal Acquisition Regulation exceptions.

Air Program Grants

Section 105 of the Clean Air Act requires grantees to spend an amount equal to or greater than the previous year's expenditures to remain eligible for federal assistance. However, a fiscal 1995 audit found that six of eight grantees in two EPA regions underreported their expenditures in one year to reduce the funds they would otherwise have been required to spend in the following year. The regions did not identify and correct this situation.

Agency Actions

The Agency is nearly finished implementing the 40 recommendations in its June 1992 report on EPA's contracts management; to date EPA has implemented 38 of the recommendations and is progressing on the remaining 2. In response to the reports mentioned above, EPA has taken a number of actions. For example, EPA officials acknowledged the OIG's concerns about GAD's compliance with policies and procedures in the administration of assistance agreements, stating that awarding the agreements was given a higher priority than monitoring or closing them. The Agency is correcting some of the problems, but cited resource constraints as preventing them from addressing others. EPA has issued policies and procedures to improve its subcontracting practices, and is drafting policies to reduce the amount of equipment that can be provided to contractors and to clarify the circumstances in which it can be provided. Executive Summary

Section 1--
Significant Findings and Recommendations

  1. Improved Controls Needed To Track Hazardous Waste The manifest system for controlling the movement of hazardous waste does not always ensure generators, EPA, or the states track waste from generation to disposal. In addition, the hazardous waste activity notification process is inadequate and inspections were not always prioritized or properly documented (Report text).

    2. Better Drinking Water Data Can Reduce the Risk of Diseases and Illnesses

    Nationwide, about 12 percent of community, surface public water systems (PWS) reported invalid or potentially falsified data at least once from 1991 through 1994. Without state officials or EPA reviewing the validity of the data, serious health risks could go undetected and negate EPA's and the states' ability to prevent water supply contamination(Report text).

    3. Despite Improvements, the Environmental, Safety, and Health Program at EPA Laboratories Remains Inadequate

    EPA's Environmental, Safety, and Health (ESH) program at laboratories, while improving, is inadequate to protect employees, facilities, and the environment. Also, the Agency's ESH audit process needs strengthening to improve its effectiveness in detecting deficiencies and promoting corrective action(Report text).

    4. Laboratory Quality Assurance Program Saved Over $1.5 Million

    The Risk Reduction Engineering Laboratory's (RREL) quality assurance (QA) program was well-managed, innovative, and resulted in savings to RREL of over $1,500,000.

    5. Hundreds of Thousands in Savings Possible Through Increased Use of Bankcards

    EPA could have saved as much as $700,000 in administrative costs during fiscal 1994 if all procurement officials made maximum use of the bankcard program instead of less efficient, more costly small purchase methods. The Agency's added restrictions further hindered use of the program (Report text).

    6. IRS Not Notified of Millions in Contract Payments

    Although EPA generally complied with Internal Revenue Code (IRC) requirements for reporting taxpayer identification numbers (TINs), it did not issue information returns (Forms 1099) for contract payments in excess of $4 million. In addition, the Agency has not taken appropriate actions to obtain correct TINs in response to IRS notices.

    7. Symposium Funded by Unauthorized Means and Cooperative Agreement Used Improperly

    EPA arranged for the collection of fees and donations without statutory authority to defray the costs of its 1995 Gulf of Mexico Program (GMP) Symposium. The Agency also improperly modified a cooperative agreement to obtain services and pay costs such as food, entertainment, and travel unallowable under a contract (Report text).

    8. Improvements Required in the Minority Business Enterprise (MBE) Program's Process and Data

    We determined that the reported MBE data was incomplete, inconsistent, untimely, and inaccurate.

    9. Ohio Leaking Underground Storage Tank (LUST) Program Costs Lack Support

    The Ohio Bureau of Underground Storage Tanks Regulation (BUSTR) had an inadequate financial management system and was unable to support costs claimed under the 1995 LUST cooperative agreement.

    10. Air Program Grant Oversight Process Needs Improvement

    EPA oversight of Section 105 grants under the Clean Air Act (CAA) did not effectively persuade grantees to correct performance problems and resolve unmet commitments to improve air quality. In addition, grantee eligibility was questionable because financial data submitted by grantees was often inaccurate.

    11. Better Controls Needed Over Assistance Agreements

    EPA grants specialists and project officers did not properly administer and monitor assistance agreements to determine if performance requirements were met, nor did they identify an estimated $33 million in unused funds for allocation elsewhere (Report text).

    12. University Misuses Millions of Cooperative Agreement Funds

    Clark Atlanta University (CAU) mismanaged congressionally earmarked funds provided under an EPA cooperative agreement to establish a hazardous substance research center. As a result, the center was not properly established and serious control weaknesses contributed to $3.6 million of ineligible or unsupported costs(Report text).

    13. Los Angeles, California, Claimed Over $28 Million of Ineligible Costs

    The City of Los Angeles, California, claimed $28,168,662 of ineligible construction, engineering, and force account costs for the Terminal Island and Hyperion wastewater treatment facilities. An additional $207,100 of unnecessary costs were questioned.

    14. Nearly $1.8 Million of Questioned Costs Claimed for Morristown, New Jersey, Project

    The Town of Morristown, New Jersey, claimed $1,589,626 of ineligible architectural engineering, construction and administrative costs for the construction of sewer lines and a sewer crossing. An additional $177,971 of unsupported costs were questioned.

    15. Millions of Dollars in Superfund Site Data Rejected

    Region 9 had not significantly strengthened its oversight program over Department of Defense (DOD) laboratories or required DOD to improve its quality assurance project plans. Partly as a result of this, hazardous waste cleanups at five DOD Superfund sites in Region 9 were delayed up to 2 « years, and $5.5 million in data were rejected due to the poor quality of laboratory analyses.

    16. Superfund Cost Estimates May Be Unreliable

    EPA used outdated cost factors which may have substantially underestimated response costs and budgets for Superfund sites. Further, the incompatibility of management information systems may limit managers' abilities to properly monitor the Superfund program.

    17. Improvements Needed in Management of Contractor Activities

    Many aspects of the Environmental Services Assistance Team contract management activities performed at EPA's Lexington, MA, and Edison, NJ, facilities were well managed. However, better financial management and controls were needed over contractor's work products, government furnished property (GFP), costs and resources.

Section 2--Report Resolution

This section, required by the IG Act, reports on the status and results of Agency management actions to resolve audit reports. At the beginning of the semiannual period, there were 295 reports for which no management decision had been made. During the second half of fiscal 1995, the Office of Inspector General issued 449 new reports and closed 405. At the end of the reporting period, there were 335 reports for which no management decision had been made. Of the 335 reports, there were 130 for which no management decision was made within 6 months of issuance.

For the 207 reports closed that required agency action, EPA management disallowed $75.4 million of questioned costs and agreed with our recommendations that $17.8 million be put to better use. In addition, cost recoveries in current and prior periods included $4.5 million in cash collections, and at least $54.3 million in offsets against billings.

Section 3--Prosecutive Actions

During this semiannual reporting period, our investigative efforts resulted in 4 convictions and 4 indictments. Also, our investigative work led to $69, 396 in fines and recoveries.

Section 4--Fraud Prevention and Management Improvements

During this semiannual period, we reviewed 4 legislative and 74 regulatory items. The most significant comments were on the proposed Clean Water Act, the Superfund statute, a proposed revision to the Federal Acquisition Regulation, the role of project officers in grants and cooperative agreements, a proposal to streamline small grants, a proposed Agency delegation involving the responsibilities of Senior Resource Officials, and a draft policy on flexiplace.

The Office of Grants and Debarment completed action on 18 OIG-generated suspension and debarment cases during this reporting period, resulting in 9 debarments, 7 suspensions, and two compliance agreements.

The EPA Committee on Integrity and Management Improvement (CIMI), chaired by the Inspector General, published a bulletin on Employee Suitability Determinations and Security Clearances, and sponsored Public Service Recognition Week.

Twenty-four new Hotline cases were opened and 19 were closed during the reporting period. Of the closed cases, 4 resulted in environmental, prosecutive, or administrative corrective action. Profile of Activities and Results (First number is total for period April 1 to September 30, 1995, second number is total for Fiscal Year 1995)

Audit Operations

OIG Managed Reviews:

Reviews Performed by EPA, Independent Public Accountants and State Auditors

Other Reviews:

Agency Recoveries:

Reports Issued: 


Total Reports Issued: 449, 896

Reports Resolved (Agreement by
Agency officials to take satisfactory
corrective action)***:207, 356

Investigative Operations

Fraud Detection and Prevention Operations

*Questioned Costs (Ineligible, Unsupported, and Unnecessary/Unreasonable) and Recommended Efficiencies (Funds be Put to Better Use) are subject to change pending further review in the audit resolution process. **Information on recoveries from audit resolution is provided from the EPA Financial Management Division and is unaudited. ***Reports resolved are subject to change pending further review. ****$140.4 Million previously unreported for the period ending 3/31/95 was added after subsequent consideration. Establishment of the OIG in EPA--Its Role and Authority

The Inspector General Act of 1978 (Public Law 95-452), as amended, created Offices of Inspector General to consolidate existing investigative and audit resources in independent organizations headed by Inspectors General.

EPA established its Office of Inspector General (OIG) in January 1980. As an agency with a massive public works budget, EPA is vulnerable to various kinds of financial abuses. The OIG's role is to review EPA's financial transactions, program operations, contracts, and administrative activities; investigate allegations or evidence of possible criminal and civil violations; and promote economic, efficient, and effective Agency operations. The OIG is also responsible for reviewing EPA regulations and legislation.

The EPA Inspector General reports directly to the Administrator and the Congress and has the authority to:

Initiate and carry out independent and objective audits and investigations, Issue subpoenas for evidence and information, Obtain access to any materials in the Agency, Report serious or flagrant problems to Congress, Select and appoint OIG employees,
Fill Senior Executive Service positions, Administer oaths, and
Enter into contracts.

The Inspector General is appointed by, and can be removed only by, the President. This independence protects the OIG from interference by Agency management and allows it to function as the Agency's fiscal and operational watchdog.

Organization and Resources

The Office of Inspector General functions through three major offices, each headed by an Assistant Inspector General: Office of Audit, Office of Investigations, and Office of Management. Nationally, there are eight Divisional Inspectors General for Audit and three Divisional Inspectors General for Investigations who direct staffs of auditors and investigators and who report to the appropriate Assistant Inspector General in Headquarters.

For fiscal 1995, the Agency was appropriated $7.2 billion and authorized 19,069 full time equivalent (FTE) positions to conduct the environmental programs authorized by Congress to restore and protect the environment. As a separate appropriation account, the Office of Inspector General (OIG) received $44.5 million to carry out the provisions of the Inspector General Act of 1978, as amended. Nearly $15.4 million of the OIG's appropriation was derived from the Hazardous Substance Superfund trust fund and $669,000 was derived from the Leaking Underground Storage Tank trust fund. The OIG had a funded staffing level of 447 FTE positions.

Purpose and Requirements of the Office of Inspector General Semiannual Report

The Inspector General Act of 1978 (Public Law 95-452), as amended, requires the Inspector General to keep the Administrator and Congress fully and currently informed of problems and deficiencies in the Agency's operations and to recommend corrective action.

The IG Act further specifies that semiannual reports will be provided to the Administrator by each April 30 and October 31, and to Congress 30 days later. The Administrator may transmit comments to Congress along with the report, but may not change any part of it.

Created December 23, 1996

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